The Cypriot government’s initiative to establish a Unified Supervisory Authority must be revisited

Recently, the Cypriot government announced its initiative towards establishing a Unified Supervisory Authority. Through this initiative the government suggests to consolidate the oversight of administrative service providers across sectors, such as the Cyprus Securities and Exchange Commission (CySEC), the Institute of Certified Public Accountants of Cyprus (ICPAC), and the Cyprus Bar Association (CBA). The government promotes this measure as a means to improve Cyprus’s financial reputation internationally.

The government contends that this move is a response to international criticisms, notably from Moneyval and other global regulatory bodies, suggesting that Cyprus must strengthen its anti-money laundering (AML) framework and coordinate regulatory oversight across sectors. Governmental officials argue that a centralized authority would allow Cyprus to address risks swiftly and align with EU and global compliance standards.

Moneyval, the Council of Europe’s AML expert committee, conducted its fifth evaluation of Cyprus in December 2019, with follow-up assessments in 2020, 2021, 2022 and 2024. The reports did highlight vulnerabilities in Cyprus’s AML/CFT framework, pointing out issues in areas like administrative service providers (ASPs), the real estate sector, and the now redundnant and void Cyprus Investment Programme (CIP). However, the reports focused on improving sector-specific compliance rather than advocating for a unified regulatory authority.

Indeed, no Moneyval or other international report explicitly recommended establishing a unified regulatory authority neither was there any suggestion or endorsment of consolidating regulatory powers into a single entity. Moneyval’s recommendations primarily targeted improving compliance with FATF standards and addressing sectoral risks, but have never suggested that a unification of supervisory control will improve compliance.

Moreover, the latest Moneyval report, released in May 2024, notes Cyprus’s substantial progress in areas such as virtual asset service providers (VASPs) and AML measures for the non-for profit sector, reflecting effective compliance efforts under existing structures. The country was re-rated from “Partially Compliant” to “Largely Compliant” in several areas, achieving compliance with 37 out of 40 FATF Recommendations. It is highlighted here, that these improvements occurred within the current decentralised framework, demonstrating that progress is feasible without a unified supervisory authority.

Moneyval’s most recent assessments do not address or evaluate the potential impact of the government’s unified authority proposal. The organization’s focus remains on sector-specific compliance improvements, with no mention of a need for or evaluation of a unified regulatory structure. Indeed, this lack of any reference whatsoever, suggests that Moneyval has not endorsed this structural shift as a requisite step for enhancing Cyprus’s regulatory framework.

It is therefore submitted that the establishment of a unified regulatory authority is not a necessity based on rational analysis of Moneyval’s findings, as the government seems to be suggesting. Instead, the initiative appears to be an abstract and superfluous measure and may very well fail in enhancing Cyprus’s compliance stance as purported by the government.

This article does not seek to explore the disadvantages of forming a unified suprevisory authority but rather to highlight a critical misinterpretation of Moneyval’s findings by the Cypriot government. But reading and hearing, governmental officials for the past 6 moths refering to Moneyval’s findings as the cause for the promotion of this initiative, one safely concludes that those promoting the initiative are essentially, ignorant to or are misinterprating Moneyvals findings. It is in view of this misinterpretation, that this article calls for an immediate reassessment of the governmental initiative, as the establishment of a unified regulatory body appears to be based on an erroneous reading of Moneyval’s evaluations, and revisiting the decision may ultimately lead to more practical and effective AML/CFT reforms.